Can someone explain these PCP figures to newb?

Mercdriver

General advice - and I agree with it - is never do a PCP on a used vehicle.

DrEskimo

Mercdriver said:

General advice - and I agree with it - is never do a PCP on a used vehicle.

Agreed.

Used PCP tend to have high APR and low GFVs. As such, it doesn't take a huge amount of additional deposit to end up with similar monthly payments on a low interest bank loan. 

For example, a more likely GFV is ~£7,000 on this car. So on a 3yr PCP at 9.9% with £1,000 deposit would be ~£320/month, with a total interest charge of ~£3,200.

For the same £320/month, you could borrow £11,000 over 3yrs at a personal loan rate of 3% (dependent on acceptance).
That would amount to just £516 in interest charges, over £2,500 saving! All it requires is upping the deposit from £1,000 to £4,995.

MayhemMoney

DrEskimo said:

MayhemMoney said:

DrEskimo said:

MayhemMoney said:

DrEskimo said:

The bit you are missing is the £13,466.75 that you still have outstanding at the end of the deal. Essentially the finance company are estimating that the car after an extra 36months and 30,000 miles on the clock will depreciate from £15,995 to £13,466 (this seems awfully high, I suspect this is simply a representative example and not what will be offered...!). So essentially all of your upfront payment and monthly payments have gone purely on depreciation and interest. You have paid nothing towards owning the car at the end. You either have to pay the £13,466 to own the car at the end of the 36m, or you trade the car in and if you are offered ≥£13,466 then you clear the finance and start again from scratch, or you hand the car back to the finance company (and again, start from scratch).

The £4,041.30 charges relates to the interest you will pay through your monthly payments. If the car is £15,995 and expected to be worth £13,466 (again, I doubt this is what will be offered and this is just a representation), then you can anticipate that if you bought the car for cash, it would only cost you £2,529 (£15,995-£13,466), or £70.25 (£42.47 after the £1,000 deposit). However, by taking the finance you are paying an additional £4,041.30 to the finance company to borrow the money and pay monthly. We can illustrate this by adding the deposit £1,000 + 35 payments at £159.13, which is £6,569.55, and compare this to the expected depreciation of £2,259. As you can see, paying with the finance amounts to £4,041.30 more than if you had not paid with finance.

I strongly assume that this does not reflect an actual PCP quote though. I think its fair to say that a finance company will be predicting a much lower final payment than £13,466 after driving a £15,995 BMW for a further 36months and 30,000 miles!

But to simplify things, just think of it as you would using finance to buy anything else. Using finance to pay for, say car insurance, means you pay more overall, but it allows you to pay monthly. Same with a TV, or a sofa, or anything. So the question is, are you happing paying an extra £4,041.55 (on top of all the other costs associated with the car) to pay monthly?

Ok so what’s happened here is the quote is estimating the value at the end of the 3 years much higher than what it probably will be when getting a real quote.
i understand the part about balloon payment at the end and I don’t intend to do that, just a car to use for 3 years then give back. 

If the figures they quoted are real in my opinion it would be a good deal to me 

If you want to just use a car for 3 years, then I still advocate buying without finance and then selling private. It will be much cheaper with respect to total ownership costs. Anything you save in extra depreciation is more than lost with the interest you pay.

I mean you could trade it in to have exactly the same experience as a PCP, but given that selling privately can net you an extra £1-2k, then the extra effort is more than compensated for IMO.

What I do tend to do is buy a used car on PCP if it has deposit contributions or free services from a dealer. I then settle soon after. Just be sure the car is a good price relative to the market.

Hm ok I might just stick with buying out right then. I done the same thing on my car before last I agreed to the finance deal then settled it immediately to get the free services lol. 

If I do go the pcp route though I do plan on using the capital raised to go into my s&s isa so that should help offset some of the interest im paying 

I wouldn't personally recommend leveraging your investments with high interest finance secured on a heavily depreciating asset...

Should you find your self in difficulty with making the payments at any point over the next few years, you may need to access the funds when the markets are down considerably, thereby consolidating any paper loses. You may find yourself in a situation where you don't have enough to repay the finance. With borrowing comes risk, compounded by investment risk in this case.

In any case, if you are set on leveraging, there are far cheaper ways to borrow money, e.g. 0% balance transfer cards, low rate bank loans, etc.

The rate it depreciates surely is no longer my concern once they've given their gmv? 
But yes I think I'll stick with my usual method of just buying them outright and perhaps see if any 0% deals I can take advantage of to leverage the money. I can't see myself needing to consolidate any paper loses this is money I'm not going to need just building for early retirement. Although I appreciate this would come with a risk. 

MayhemMoney

Deleted_User said:

The 1 series is pretty ugly too, looks a lot like an old shape Megane. 

haha yeah it's not really a looker but that's not why you buy a m135i, I want to get one because it's the last 1 series that rwd and last one thats 3litre engine. the new 1 series is plan old fwd and 2litre 4pots like the merc and audi.
I only had looks in mind when i brought my current car mercedes cla and its very pretty but i longer have a drive to work so don't mind getting a silly hot hatch for fun and it's really good value the amount of car you get for the money. 3litre 300bhp for around 15k on a 15plate is mental value.
not moneysaving value but as far as hot hatches go its a good buy and should hold it's value well as the new 1 series m135i petrol heads are hating due to no longer rwd and no longer 3litre.

MayhemMoney

WaywardDriver said:

As others have said the £13466 final payment seems high. This may not seem important if you don't intend to buy the car after the 36 months but it does impact on the monthly payment. Using a more realistic value of £8466 say, I calculate the monthly payment increases from £159 to £278. 

Jonesya said:

I'd forget those numbers, it's a BMW 1 series, already 5 years old and would be 8 years old at the end of the PCP. BMW 1 series are everywhere, there's no scarcity, an 8 year old used one won't be worth £13,466 in 3 years time.

I expect if you progress this to a detailed quite, the correct residual value will be applied which will be a fair bit lower, pushing up the monthly payments.

yeah this is where the confusion came from, the quoted values are unrealistic i imagine they'll change should i enquire for a actual quote. 

DrEskimo

MayhemMoney said:

DrEskimo said:

MayhemMoney said:

DrEskimo said:

MayhemMoney said:

DrEskimo said:

The bit you are missing is the £13,466.75 that you still have outstanding at the end of the deal. Essentially the finance company are estimating that the car after an extra 36months and 30,000 miles on the clock will depreciate from £15,995 to £13,466 (this seems awfully high, I suspect this is simply a representative example and not what will be offered...!). So essentially all of your upfront payment and monthly payments have gone purely on depreciation and interest. You have paid nothing towards owning the car at the end. You either have to pay the £13,466 to own the car at the end of the 36m, or you trade the car in and if you are offered ≥£13,466 then you clear the finance and start again from scratch, or you hand the car back to the finance company (and again, start from scratch).

The £4,041.30 charges relates to the interest you will pay through your monthly payments. If the car is £15,995 and expected to be worth £13,466 (again, I doubt this is what will be offered and this is just a representation), then you can anticipate that if you bought the car for cash, it would only cost you £2,529 (£15,995-£13,466), or £70.25 (£42.47 after the £1,000 deposit). However, by taking the finance you are paying an additional £4,041.30 to the finance company to borrow the money and pay monthly. We can illustrate this by adding the deposit £1,000 + 35 payments at £159.13, which is £6,569.55, and compare this to the expected depreciation of £2,259. As you can see, paying with the finance amounts to £4,041.30 more than if you had not paid with finance.

I strongly assume that this does not reflect an actual PCP quote though. I think its fair to say that a finance company will be predicting a much lower final payment than £13,466 after driving a £15,995 BMW for a further 36months and 30,000 miles!

But to simplify things, just think of it as you would using finance to buy anything else. Using finance to pay for, say car insurance, means you pay more overall, but it allows you to pay monthly. Same with a TV, or a sofa, or anything. So the question is, are you happing paying an extra £4,041.55 (on top of all the other costs associated with the car) to pay monthly?

Ok so what’s happened here is the quote is estimating the value at the end of the 3 years much higher than what it probably will be when getting a real quote.
i understand the part about balloon payment at the end and I don’t intend to do that, just a car to use for 3 years then give back. 

If the figures they quoted are real in my opinion it would be a good deal to me 

If you want to just use a car for 3 years, then I still advocate buying without finance and then selling private. It will be much cheaper with respect to total ownership costs. Anything you save in extra depreciation is more than lost with the interest you pay.

I mean you could trade it in to have exactly the same experience as a PCP, but given that selling privately can net you an extra £1-2k, then the extra effort is more than compensated for IMO.

What I do tend to do is buy a used car on PCP if it has deposit contributions or free services from a dealer. I then settle soon after. Just be sure the car is a good price relative to the market.

Hm ok I might just stick with buying out right then. I done the same thing on my car before last I agreed to the finance deal then settled it immediately to get the free services lol. 

If I do go the pcp route though I do plan on using the capital raised to go into my s&s isa so that should help offset some of the interest im paying 

I wouldn't personally recommend leveraging your investments with high interest finance secured on a heavily depreciating asset...

Should you find your self in difficulty with making the payments at any point over the next few years, you may need to access the funds when the markets are down considerably, thereby consolidating any paper loses. You may find yourself in a situation where you don't have enough to repay the finance. With borrowing comes risk, compounded by investment risk in this case.

In any case, if you are set on leveraging, there are far cheaper ways to borrow money, e.g. 0% balance transfer cards, low rate bank loans, etc.

The rate it depreciates surely is no longer my concern once they've given their gmv? 

The GFV only applies at one single point in time, at the end of the 36month term. You can't exercise your right to hand it back any other day over the 36months. You would have to trade it in for whatever price it's worth and hope it settles the outstanding finance any other time.

(There is VT, but this is rarely much sooner than the end, and accepting 50% depreciation, along with 50% of the payable interest ,doesn't seem like much 'protection').

MayhemMoney

DrEskimo said:

MayhemMoney said:

DrEskimo said:

MayhemMoney said:

DrEskimo said:

MayhemMoney said:

DrEskimo said:

The bit you are missing is the £13,466.75 that you still have outstanding at the end of the deal. Essentially the finance company are estimating that the car after an extra 36months and 30,000 miles on the clock will depreciate from £15,995 to £13,466 (this seems awfully high, I suspect this is simply a representative example and not what will be offered...!). So essentially all of your upfront payment and monthly payments have gone purely on depreciation and interest. You have paid nothing towards owning the car at the end. You either have to pay the £13,466 to own the car at the end of the 36m, or you trade the car in and if you are offered ≥£13,466 then you clear the finance and start again from scratch, or you hand the car back to the finance company (and again, start from scratch).

The £4,041.30 charges relates to the interest you will pay through your monthly payments. If the car is £15,995 and expected to be worth £13,466 (again, I doubt this is what will be offered and this is just a representation), then you can anticipate that if you bought the car for cash, it would only cost you £2,529 (£15,995-£13,466), or £70.25 (£42.47 after the £1,000 deposit). However, by taking the finance you are paying an additional £4,041.30 to the finance company to borrow the money and pay monthly. We can illustrate this by adding the deposit £1,000 + 35 payments at £159.13, which is £6,569.55, and compare this to the expected depreciation of £2,259. As you can see, paying with the finance amounts to £4,041.30 more than if you had not paid with finance.

I strongly assume that this does not reflect an actual PCP quote though. I think its fair to say that a finance company will be predicting a much lower final payment than £13,466 after driving a £15,995 BMW for a further 36months and 30,000 miles!

But to simplify things, just think of it as you would using finance to buy anything else. Using finance to pay for, say car insurance, means you pay more overall, but it allows you to pay monthly. Same with a TV, or a sofa, or anything. So the question is, are you happing paying an extra £4,041.55 (on top of all the other costs associated with the car) to pay monthly?

Ok so what’s happened here is the quote is estimating the value at the end of the 3 years much higher than what it probably will be when getting a real quote.
i understand the part about balloon payment at the end and I don’t intend to do that, just a car to use for 3 years then give back. 

If the figures they quoted are real in my opinion it would be a good deal to me 

If you want to just use a car for 3 years, then I still advocate buying without finance and then selling private. It will be much cheaper with respect to total ownership costs. Anything you save in extra depreciation is more than lost with the interest you pay.

I mean you could trade it in to have exactly the same experience as a PCP, but given that selling privately can net you an extra £1-2k, then the extra effort is more than compensated for IMO.

What I do tend to do is buy a used car on PCP if it has deposit contributions or free services from a dealer. I then settle soon after. Just be sure the car is a good price relative to the market.

Hm ok I might just stick with buying out right then. I done the same thing on my car before last I agreed to the finance deal then settled it immediately to get the free services lol. 

If I do go the pcp route though I do plan on using the capital raised to go into my s&s isa so that should help offset some of the interest im paying 

I wouldn't personally recommend leveraging your investments with high interest finance secured on a heavily depreciating asset...

Should you find your self in difficulty with making the payments at any point over the next few years, you may need to access the funds when the markets are down considerably, thereby consolidating any paper loses. You may find yourself in a situation where you don't have enough to repay the finance. With borrowing comes risk, compounded by investment risk in this case.

In any case, if you are set on leveraging, there are far cheaper ways to borrow money, e.g. 0% balance transfer cards, low rate bank loans, etc.

The rate it depreciates surely is no longer my concern once they've given their gmv? 

The GFV only applies at one single point in time, at the end of the 36month term. You can't exercise your right to hand it back any other day over the 36months. You would have to trade it in for whatever price it's worth and hope it settles the outstanding finance any other time.

(There is VT, but this is rarely much sooner than the end, and accepting 50% depreciation, along with 50% of the payable interest ,doesn't seem like much 'protection').

OK i think i see what ur saying, should i come into financial difficulty and want to end early then the deprivation i do need to worry about, but if i stick out the 3 years it'll be the guaranteed GFV.
£160 a month is very very low so couldnt see that being a problem.
but this is all hypothetical now because as you've told me those figures are all wrong and not a real GFV the monthly payments in reality will be higher and so i should just buy the next car like normal 

Mercdriver

CLA a pretty car?  There's no accounting for taste

Petriix

The significant point which gets glossed over when comparing PCP to outright purchase is the difficulty in obtaining the extra funds upfront. Most people don't have £25k just sitting in the bank so they will have to borrow the money from somewhere.

The cheapest way to borrow £25k is (usuall) on a mortgage; as long as you overpay to pay it off over a similar term to that of a typical car finance agreement. However, it can add up to significantly more if spread out over decades, and it is a considerable risk to lump the cost of a depreciating asset onto a loan secured against your home.

Next, people suggest an unsecured personal loan. The interest paid over the term is (usually) significantly lower than a PCP agreement. However, the monthly payments are typically much more, which makes it unaffordable to many people.

Not all PCP deals are created equal. They are often loaded with incentives which make them more attractive, although these are often not straightforward. 0% PCP usually attracts a higher purchase price which has to be accounted for. The GFV figure is another confusing issue. Ironically, a lower GFV is often better for the buyer because they pay more of the capital off each month (soppay less interest overall) and potentially build more equity if the car turns out to be worth more than the balloon payment at the end of the term.

Lease is almost always cheaper than PCP. The only real advantage of PCP is the option to buy. There's nothing stopping you from leasing a car for 2 years then buying a similar 2 year old model for roughly the GFV of the equivalent PCP deal. This usually works out cheaper and you are protected from the risk of the depreciation being higher than predicted.

In any case, right now I wouldn't be gambling that any ICE car would retain much value over the next 3 years as so many EVs are hitting the market. I'd be doing some serious sums looking at the total cost of ownership including VED and fuel before buying anything.

AdrianC

MayhemMoney said:

The rate it depreciates surely is no longer my concern once they've given their gmv?  

Too high a balloon means you're paying more total interest, because you're borrowing more money for longer.
Too low a balloon (if you aren't going to want to buy at the end) means more total expenditure, because you're repaying more in the monthlies.